- Gold price catches fresh bids on Tuesday amid Middle East tensions and US election jitters.
- Bets for smaller Fed rate cuts remain supportive of elevated US bond yields and the USD.
- A positive risk tone might further contribute to capping the XAU/USD ahead of US data.
Gold price (XAU/USD) maintains its bid tone heading into the European session on Tuesday and currently trades just above the $2,750 level, well within the striking distance of the record high touched last week. Against the backdrop of geopolitical risks, the US political uncertainty turns out to be a key factor acting as a tailwind for the safe-haven precious metal. Apart from this, a softer tone surrounding the US Treasury bond yields and the cautious market mood lend additional support to the commodity.
Meanwhile, bets for smaller rate cuts by the Federal Reserve (Fed) should act as a tailwind for the US bond yields and assist the US Dollar (USD) to tall the previous day’s retracement slide from a three-month high. This, in turn, is holding back traders from placing fresh bullish bets around the non-yielding Gold price. Investors might also prefer to wait on the sidelines ahead of this week’s important US macro releases, which should offer cues about the Fed’s rate outlook and provide a fresh impetus.
Daily Digest Market Movers: Gold price draws support from a combination of factors, renewed USD buying caps gains
- Retreating US Treasury bond yields triggered an intraday US Dollar pullback from its highest level since July 30 and assisted the Gold price in attracting some dip-buyers near the $2,725 region at the start of an eventful week.
- The recent upbeat US macro data dampened hopes for another jumbo rate cut by the Federal Reserve, which should act as a tailwind for the US bond yields amid deficit-spending concerns after the November 5 US election.
- With the US presidential election approaching, Vice President Kamala Harris and the Republican nominee Donald Trump are caught in a knife-edge battle to the White House, adding a layer of uncertainty in the markets.
- The US warned Iran at the United Nations Security Council of severe consequences if it undertakes any further aggressive acts against Israel in retaliation to the latter’s strikes on military targets across Iran over the weekend.
- China’s gold consumption in the first three quarters of 2024 slid 11.18% from the same period a year ago as high prices dented buying interest for jewelry products, the state-backed gold association said on Monday.
- Investors now look to Tuesday’s US economic docket – featuring the release of the Conference Board’s Consumer Confidence Index and Job Openings and Labor Turnover Survey (JOLTS) – for short-term opportunities.
- This, along with a string of US economic data due this week, should provide cues about the Fed’s interest rate outlook, which will influence the USD price dynamics and provide a fresh directional impetus to the XAU/USD.
Technical Outlook: Gold price needs to breakout through a short-term trading range for bulls to regain near-term control
From a technical perspective, acceptance above the $2,750 supply zone could be seen as a fresh trigger for bullish traders. The subsequent move up could lift the Gold price beyond the all-time peak, around the $2,759 region, towards testing a nearly four-month-old ascending trend-line resistance near the $2,770-2,775 region. The momentum could extend further towards the $2,800 round-figure mark.
That said, the Relative Strength Index (RSI) on the daily chart is on the verge of breaking into the overbought territory and warrants some caution for bulls. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further near-term appreciating move.
Meanwhile, any corrective pullback now seems to find some support near the overnight swing low, around the $2,725 region, ahead of the $2,715 zone. The latter marks the lower boundary of the one-week-old range, which if broken decisively might prompt some technical selling. The Gold price might then weaken further below the $2,700 mark, towards the $2,675 area en route to the $2,657-2,655 horizontal support.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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